ORDER
K.A. Thanikkachalam, Judicial Member
1. These appeals filed by the assessee relate to the assessment years 1980-81 and 1981-82. Since the questions involved in these appeals are common, they are disposed of by a common order for the sake of convenience.
2. The assessee during the relevant period for the assessment years 1980-81 and 1981-82 was the owner of the house at No. 3, Nungambakkam High Road, Madras. This property was valued by the assessee at Rs. 5,73,000. This property was sold in the next year for Rs. 24 lakhs. The WTO, therefore, estimated the value at Rs. 18,50,000. Before the ITO the assessee claimed that this residential premises should be valued under Section 7(4) at 1971-72 valuation rate. The WTO rejected the claim since according to him a portion of the house was used for business purposes. Before the WTO an attempt was made to show that only the servant quarters were used for business purposes. The WTO did not accept this version.
3. On appeal before the CIT(A) it was contended on behalf of the assessee that a house includes portion of the house also as per Explanation to Section 7 and, therefore, the WTO should have given relief under Section 7(4). The CIT(A) pointed out that according to the Income-tax records the ALV of this house was Rs. 7,200 and l/6th was claimed as reduction for commercial purposes and only the balance was shown as taxable ALV. According to the CIT(A) the assessee’s claim in the Income-tax records is against the claim that servant quarters were used as business premises. He further pointed out that the business was conducted by the assessee’s husband who was paid salary and also by some other employees. Therefore, it is not possible to believe, according to the CIT(A), that these employees were sitting in the servant quarters, if any, and doing the business of money lending. The CIT(A) also stated that considering the status of the assessee, she would not have carried on the money lending business in servant quarters. He also pointed out that the existence of a free servant quarters is itself doubtful. Ultimately he came to the conclusion that as per the records and according to the normal probabilities, the assessee would not have used the house exclusively for residential purposes. He, therefore, agreed with the WTO in valuing this property without applying the provisions of Section 7(4). This was the view taken by the first appellate authority in the assessment year 1981-82 also.
4. Aggrieved, the assessee is in appeal before us in both the assessment years under consideration. According to the learned counsel appearing for the assessee, the property in question should be valued according to Section 7(4). He pointed out that even assuming that the money lending business was carried on in l/6th of the house, the assessee is entitled to value this property under Section 7(4) with regard to the rest of the property which is in occupation and exclusively used for residential purposes. According to the learned counsel, the main building along with servant quarters and garage happens to be one unit and out of which the assessee requires, barring l/6th portion of the house, the remaining portion should be valued as per the provisions of Section 7(4) of the W.T. Act. On the other hand, the learned Departmental Representative supported the order passed by the CIT(A). We have heard the rival submissions made by the parties.
5. The property in question is situated at No. 3, Nungambakkam High Road, Madras. The land is freehold, trapezoidal in shape, admeasuring about 16.616 grounds (3706.2 sqm). Over this plot, a two storeyed load bearing structure and a garage-cum-servants’ quarters are erected. The plinth area of the main building is 547.84 sqrn., the plinth area of the garage-cum-servants’ quarters is 151.10 sqm.; totalling about 698.94 sqm. According to the learned counsel appearing for the assessee in spite of the fact that the assessee was carrying on money lending business in l/6th portion of the building inasmuch as the said l/6th portion was also used by the assessee, the assessee is entitled to value the entire property under Section 7(4) of the WT Act. Alternatively the case was that assuming that l/6th portion of the building was used for money lending business, the assessee is entitled to value the property under Section 7(4) in respect of the remaining portion of the property.
6. According to Section 7(4) of the W.T. Act, “notwithstanding anything contained in Sub-section (1), the value of a house belonging to the assessee and exclusively used by him for residential purposes throughout the period of twelve months immediately preceding the valuation date may, at the option of the assessee, be taken to be the price which, in the opinion of the WTO, it would fetch if sold in the open market on the valuation date next following the date on which he became the owner of the house, or on the valuation date relevant to the assessment year commencing on the 1st day of April, 1971, whichever valuation date is later”. According to Explanation (ii) to Section 7(4) “house” includes a part of a house, being an independent residential unit.
7. In view of Section 7(4) read with Explanation (ii) the assessee is entitled to value her property under Section 7(4) to the extent of 5/6th of the same since according to the Department l/6th of the said property is used for money lending business. A similar view was taken by the Appellate Tribunal, Allahabad Bench-B in the case of WTO v. Bansilal Agrawal [1982] 13 TTJ 375. Before us the learned counsel appearing for the assessee produced copies of valuation reports by the assessee’s valuer, departmental valuer and a site plan etc. From the site plan we came to understand that the land on which the superstructure stands does not appear to be in regular square or rectangle in shape. The learned Departmental Representative contended that in view of the fact that the area of the land was 16.616 grounds, there is excess land, apart from the land appurtenant to the main building. Therefore, according to the learned Departmental Representative the excess vacant land apart from the appurtenant land to the main building should be valued separately. On a perusal of the site plan, we are unable to agree with the contention raised by the learned Departmental Representative, in this regard because the vacant land surrounding the main building and the garage appears to be appurtenant to those buildings meant for the convenient enjoyment of the same. Further, the fact remains that this property was sold subsequently. Considering these facts in the light of Section 7(4) read with Explanation (ii), we direct the WTO to value 5/6th portion of this house according to Section 7(4) of the W.T. Act and the remaining l/6th may be valued in accordance with the existing market value without applying Section 7(4) of the W.T. Act. In that view of the matter the order passed by the CIT(A) on this point is set aside and the direction given by us herein above will be carried out by the WTO, after giving an opportunity of being heard to the assessee.
8. Another point in these appeals relates to valuation of shares under Rule 2B of the W.T. Rules. The assessee’s stock-in-trade consists of shares. It was found that the market value of the shares exceeded the cost by more than 20 per cent according to the WTO. Therefore, he held that Rule 2B of the W.T. Rules applies. Applying this rule the shares are valued at Rs. 23,78,624. In other words the WTO valued these shares by taking the entire shares as one unit, the cost of which exceeded by more than 20 per cent and thereby applied Rule 2B of the W.T. Rules. On appeal the CIT(A) confirmed the view taken by the WTO on this point in both the assessment years under consideration. Aggrieved, the assessee is in appeal before us. According to the assessee each share should be taken separately for valuation and if the cost exceeds 20 per cent then it should be valued according to Rule 2B and if it docs not exceed, it should be valued without applying Rule 2B of the W.T. Rules. A similar question came up for consideration before the Tribunal in the case of the same assessee in W.T.A. No. 631 (Mds.)/85 for the assessment year 1979-80, wherein the Tribunal in its order directed the WTO to apply Rule 2B strictly in respect of each share. It further held that the WTO will adopt the market value only in respect of such shares where the market value exceeds the book value by more than 20 per cent as required under Rule 2B. Considering the facts and circumstances appearing, similar in the assessment years 1979-80,1980-81 and 1981-82 and by applying the reasons given in the order in WTA No. 631 (Mds.)/85 we direct the WTO to value the shares in question wherever the market value exceeds the book value by more than 20 per cent by applying Rule 2B and in respect of the other shares the WTO should value by not applying (he said Rule 2B. In the result, the appeals filed by the assessee are allowed in part for statistical purposes.
T.V.K. Natarajachandran, Accountant Member
1. I have gone through the order proposed by my learned brother, but I am unable to agree with his decision. According to my learned brother 5/6th portion is to be valued according to Section 7(4) of the Wealth-tax Act while l/6th portion is to be valued in accordance with the existing market value without applying Section 7(4) of the W.T. Act. For coming to this conclusion, he has relied on the Explanation (ii) to Section 7(4) of the W.T. Act. He also opined that the vacant land surrounding the main building and the garage is appurtenant for the convenient enjoyment of the property. Consequently he set aside the orders of the CIT(A). Regarding the valuation of shares, following the order of the Tribunal for the assessment year 1979-80, he directed the valuation of the shares to be done strictly according to Rule 2B wherever it is applicable. Since I do not agree with the decision of my learned brother regarding valuation of the property, according to Section 7(4) of the W.T. Act, I am recording my note of dissent separately.
2. Besides legal ownership, exclusive user for residential purposes and that too throughout the period of 12 months immediately preceding the valuation date at the option of the assessee are the special statutory prescriptions which are to be satisfied cumulatively so as to be eligible for benefit of valuation under Section 7(4) of the W.T. Act. Otherwise valuation under Section 7(1) which is the general prescription would apply as in all other cases. This is clear from the fact that Section 7(4) contains the non obstante clause and this clause over-rides the normal method of valuation prescribed under Section 7(1).
3. Therefore for application of special beneficial provisions, the assessee must lead evidence and establish that all the conditions prescribed are satisfied. The onus is on the assessee to establish. The word “exclusively” appearing before the word “used” is not legislative surplage or verbiage or redundant or drafting inaccuracy at all. On the other hand, it is to be presumed that the Legislature intended every word to be significant so as to serve a specific purpose or object. The object of Section 7(4) appears to be that as long as one, house is used by the owner exclusively for his residential purposes throughout the period of 12 months, that is the previous year before the valuation date, the assessee should not be burdened every year with tax on appreciation in market value of such property but to peg down the value as on the valuation date next following the date on which he became the owner of the property or on (he valuation date relevant for the assessment year commencing on 1 -4-1971, i.e., as on 31-3-1971 whichever is later.
4. Admittedly the assessee carried on money lending and dealings in his shares in the house property under consideration and for that reason on estimate deducted l/6th of the annual value of the house property in the Income-tax assessment. Even at the time of hearing the learned counsel for the assessee admitted this factual portion. In the letter dated 14-3-1985 addressed to the ITO, the assessee admitted that her business consists of money lending and dealings in shares, but these did not require much space in the house property. The business is said to be carried on by her husband with one or two clerks and, therefore, it was not a big establishment. Even the corporation receipts did not specify separate details for servants’ I quarters so as to constitute it as a separate unit of assessment. Thus it is evident that the house property is not used exclusively for residential purposes.
5. The case of the assessee as seen from the letter cited is that she was using the servant’s quarter as the place of business whose area is roughly l/6th of the main building. It is pertinent to point out that a perusal of the plan shows that the servant’s quarter is at the rear end of the main building and there are garages in front of it. These are necessary adjunct for convenient user and enjoyment of the property specially taking into account the status of the assessee. My learned brother has also given such a finding in his order. Therefore, the servant quarter and the garages together with the main building all constitute one integrated house properly and it should be treated as such. Even the Corporation receipts also confirm the position.
6. In this regard it is necessary to consider whether the plea taken by the assessee that the servant quarter is used for the business is reasonable or probable. In my opinion, the plea is only to be slated to be rejected as untenable. The assessee has share holdings in 77 companies to the extent of 1 2/2 lakhs on 31-3-1980 and yearly dividend income of Rs. 1 1/2 lakhs besides loans and advances of Rs. 45,705 and interest on debentures and bonds in 12 companies amounting to Rs. 1,647. The husband of the assessee is carrying on the business as an employee and there are two employees on the pay roll. Certainly as observed by the CWT(A), the status of the assessee is such that and the nature of business is such that it is nor possible nor practicable to carry on the business in servant’s quarter. On the other hand, it is quite probable and prudent that they should be carried on in the main building itself for the sake of safety and protection.
7. Even assuming but not granting that servant quarter was used as a business place and for that reason it should be locked for safety every day, it is not comprehensible where and how the permanent servants of the household are to be accommodated. The records show one Gurkha, one Subbia, one Aayamal and other servants were paid salary besides a driver. The garage is meant for parking cars and obviously will not be available to accommodate the servants or driver. The report dated 13-2-1979 of the District Valuation Officer described the rear portion of the property as garage-cum-servant quarter and it is intended to serve that purpose only.
8. In this connection it is also necessary to point out that Section 7(4) requires that the user of the house should be for residential purposes. The use of the word “purposes” in plural is significant. The entire property including servant quarters should be used for residence of the owner or attendant servants or must be such that it is capable of being used for residential purposes. User of the property for purposes other than residence is not countenanced by law. In this view of the matter, therefore, I am of the opinion that the special statutory prescriptions under Section 7(4) are not strictly satisfied by the assessee.
9. At this juncture it is necessary to refer to the Explanation (ii) under Section 7(4) of the W.T. Act as per which “house” includes a part of the house being an independent residential unit. Section 5(1)(iv) gives exemption for one house or part of the house belonging to the assessee. Therefore, it is clear that even if a part of the house belongs to an assessee, he is entitled to claim exemption only in respect of that part of the house. The word “or” appearing in Section 5(1)(iv) is disjunctive and not conjunctive. In other words, if an assessee owns one house he will get exemption in respect of that house. If he owns part of the house, he will get exemption in respect of that part of the house. There is no warrant for holding in respect of one house belonging to the assessee a portion thereof is used for residential purposes while the other portion is used for non-residential purposes and the assessee is entitled to get exemption only in respect of the portion used for residential purposes. It is also significant to note that the part of the house should be such that it should constitute an independent residential unit. In this case the assessee has not established that the business was actually conducted in the servant quarter. Such a plea was taken only to suit the convenience of the assessee.
10. In this connection it is also necessary to mention that the part of the house signifies ownership and not user or part of residential unit or portion thereof. Section 4(7) of the W.T. Act is relevant for our consideration. This is a special provision made in the case of a member of Association of Persons, being a Cooperative Housing Society. When a building or part thereof is allotted or leased under a House Building Scheme, the assessee shall, notwithstanding anything contained in this Act or any other law for the time being in force be deemed to be the owner of such building or part and the value of such building or part shall be included in computing the net wealth of the assessee. This provision highlights ownership of property or part thereof and not mere user of part of the property.
11. For these reasons I am of the opinion that there is no scope and justification to interpret the definition of the word “house” so as to give the benefit of valuation of the property in terms of Section 7(4) which is not at all applicable in the facts and circumstances of the case. The decision of the Tribunal, Allahabad Bench ‘B’ in the case of Bansilal Agrawal (supra) cited is not helpful to the assessee for the reasons given by me. In the circumstances, I uphold the orders of the CWT(A) for the assessment years 1980-81 and 1981-82 regarding valuation of the property at 3, Nungambakkam High Road, Madras. In/act the properly was located on a prestigious road within 500 metres off the Anna Flyover, on the side of which commercial complexes have sprung up like mushrooms and of late on the very site where the property stood once, a grand and imposing modem commercial complex has sprung up staring at every passer by. Thus the valuation adopted for this property for these years is fair and justified. However, I am in agreement with the direction given by my learned brother regarding the valuation of shares.
12. In the result, the appeals are allowed in part.
Order Under Section 24(11) of the Wealth-tax Act, 1957 read with Section 255(4) of the Income-tax Act, 1961
We have differed in our opinion in respect of the following points :-
1. Whether the definition of ‘house’ contained in Clause (ii) of Explanation under proviso to Sub-section (4) of Section 7 of the Wealth-tax Act would apply to the case of the assessee where she is the owner of the entire house, a part of which was used for business purposes?
2. Whether in the facts and circumstances of the case the assessee has satisfied the conditions of Section 7(4) of the Wealth-tax Act, 1957 so as to be entitled to the beneficial valuation of the property?
3. Whether in the facts and circumstances of the case the assessee would be entitled to valuation of 5/6th portion of the property in accordance with Section 7(4) of the Wealth-tax Act, 1957 while l/6th portion is to be valued in accordance with the market value of the property under Section 7(1) of the Wealth-tax Act, 1957?
The case is referred to the President of the Tribunal for favour of necessary action.
ORDER
1. These appeals were originally heard by Madras Bench ‘D’ consisting of Shri T.V.K. Natarajachanriran, Accountant Member and Shri K.A. Thanikkachalam, Judicial Member, as he then was. On account of a difference of opinion between them on the following points, the matter came before me as a third member under Section 24(11) of the Wealth-tax Act, 1957 read with Section 255(4) of the Income-tax Act, 1961 :
1. Whether the definition of ‘income’ contained in Clause (ii) of Explanation under proviso to Sub-clause (4) of Section 7 of the Wealth-tax Act would apply to the case of the assessee where she is the owner of the entire house, a part of which was used for business purposes?
2. Whether in the facts and circumstances of the case, the assessee has satisfied the conditions of Section 7(4) of the Wealth-tax Act, 1957 so as to be entitled to the beneficial valuation of the property?
3. Whether in the facts and circumstances of the case, the assessee would be entitled to valuation of 5/6th portion of the property in accordance with Section 7(4) of the Wealth-tax Act, 1957 while l/6th portion is to be valued in accordance with the market value of the property under Section 7(1) of the Wealth-tax Act, 1957?
2. I have heard at sufficient length the learned counsels for the assessee S/Shri R. Santhanakrishnan and K.R. Ramamani and Shri Tilak Chand the learned representative for the department. On a careful consideration of the issues involved with reference to the relevant law on the subject, I am of the opinion that the view expressed by the learned Judicial Member accords more with the law on the subject rather than the view expressed by the learned Accountant Member. Now let me advert to the facts.
3. The assessee during the relevant periods was the owner of the house at No. 3, Nungambakkam High Road, Madras. This property was valued by the assessee at Rs. 5,73,000 for the purposes of wealth-tax. This property was sold in the next year for Rs. 24 lakhs. On that basis the Wealth-tax Officer valued this property at Rs. 18,50,000. Before the Wealth-tax Officer the claim of the assessee was, however, that this was a residential premises and should be valued according to the procedure prescribed in Section 7(4) of the Wealth-lax Act, 1957, by applying which the value of the property should be taken at the value as obtaining on the valuation date relevant for the assessment year 1971-72. The Wealth-tax Officer rejected this claim on the ground that a portion of the house was used for business purposes and therefore the house could not be said to have been exclusively used for residential purposes, which is an essential requirement of Section 7(4) for its application. The claim of the assessee before the Wealth-tax Officer that only the servant quarter was used for business purposes and not the other building, was not accepted. By showing that only servant quarter was used for business purposes, the attempt of the assessee was that the requirements of Section 7(4) read with the Explanation added thereto were satisfied. Somehow this argument did not find favour with the Wealth-tax Officer.
4. Again on appeal before the Commissioner (A), the same contention was reiterated laying emphasis on the fact that under the Explanation to Section 7(4) a house includes a portion of the house if it is an independent residential unit and since the house under the occupation for residential purposes was an independent residential unit, the requirements of Section 7(4) were fully satisfied and therefore the value should be adopted, as per the option exercised by the assessee, namely, as on the valuation date for the wealth-tax assessment year 1971-72. But the Commissioner (A) agreed with the view expressed by the Wealth-tax Officer holding that the assessee could not have used the servant quarter alone for business purposes and considering the status of the assessee and the probabilities of the case, the residential premises also would have been utilised for business purposes. The same view was adopted for the assessment year 1981-82 also.
5. Then the matter came before the Income-tax Appellate Tribunal, when again the same contentions were re-emphasised. It was also pointed out that even if the business was held to have been carried on not in the servant quarter but also in the residential premises, yet having regard to the object of enacting Section 7(4) of the Wealth-tax Act, 1957, the assessee is eligible for the method of valuation provided for in that sub-section. The learned representative for the department supported the order passed by the Commissioner (A).
6. The learned Judicial Member having regard to the details of the construction of the house came to the conclusion that under the provisions of Section 7(4) of the Wealth-tax Act, 1957, the assessee is entitled to value that portion of the property, which was under the occupation for residential purposes, by the method provided for in Section 7(4) of the Wealth-tax Act and for the remaining portion at market value. Since it was agreed that 5/6th of the property was under occupation for residential purposes, he directed that 5/6th property should be valued at the method provided for in Section 7(4) and the balance of l/6th at the market value. In coming to this view, he relied upon an order passed by the Income-tax Appellate Tribunal, Allahabad Bench in the case of Bansilal Agarwal (supra),
7. The learned Accountant Member, however, look a different view, Agreeing with the view of the Wealth-tax Officer and endorsing the line of reasoning adopted by the Commissioner (A), he held that Sub-section (4) of Section 7 of the Wealth-tax Act used the word “exclusively” before the word “used” and it therefore meant that the user of the house must be exclusively for residential purposes. The servant quarter and the garages in which it was said that the business was carried on by the assessee, were so situated that it was not possible to carry on any business much less business involving money lending and share dealings. One would expect the valuable securities to be kept in the main house and not in the servant quarter. Thus when these securities were locked in the main house, it could not be said that the house was exclusively used for residential purposes. Further the servant quarters were not such as to accommodate the business, the employees besides the house hold employees. He also referred to the fact that the Municipal Corporation did not recognise the servant quarters or the garages as a separate unit of assessment. Since it was not proved to be so in this case, the Explanation did not apply. He drew analogy for his conclusion from the provisions made in Section 5(1)(iv) of the Wealth-tax Act, which granted exemption for one house or a part of the house and also to Section 7(4) of the Wealth-tax Act, which made a provision for a member of Association of Persons being a Cooperative Housing Society. He was of the opinion that the emphasis laid by Section 7(4) was also on the ownership of the property or part thereof and not mere user of part of the property. He disagreed with the view expressed by the Income-tax Appellate Tribunal, Allahabad Bench in the ease of Bansilal Agarwal (supra), referred to above. While coming to this view he kept in his forefront the fact that the property was located on a prestigious road within 500 metres off the Anna Flyover, on the side of which commercial complexes have sprung up like mushrooms and of late on the very site where the property stood once, a grand and imposing modern commercial complex had sprung up.
8. Thus the above difference of opinion on the points mentioned above have been referred to me. Pursuant thereto I have heard the learned counsels for the assessee and the learned Departmental Representative. The learned counsel for the assessee pointed out that the Explanation added to Section 7(4) of the Wealth-tax Act must be read as a pan of Section 7(4) and so read with the beneficial valuation provided for in that section is available even to a part of a house if it is capable of being used as an independent residential unit. According to him if in a house there is a residential unit capable of being used for residential purposes and was being so used, that unit must be valued by applying the beneficial valuation method provided for in Section 7(4) of the Wealth-tax Act, 1957. Therefore the view taken by the learned Judicial Member is not only appropriate but also in line with the Legislative intent of conferring benefit in the matter of valuation of residential properties for purposes of wealth-tax by pegging the value on a particular day all with a view not only to provide relief but also to avoid litigation.
9. On the other hand the learned Departmental Representative contended again by relying upon the word “exclusively” used in Section 7(4) that to be able to get the benefit of this beneficial valuation, the house must be exclusively used for residential purposes throughout the period of 12 months. It is now more or less an admitted if not a proved fact that the house was used not only for residential purposes but also for business purposes and therefore the house was not exclusively used for residential purposes and therefore the assessee lost the advantage of beneficial valuation. He placed reliance on the circular issued by the CBDT dated 5-7-1976 reported in Chaturvedi and Pilhisaria Volume 3 at page 268 to support his view and also on a decision of the Delhi High Court in the case of CWT v. Mrs. Avtar Mohan Singh [1972] 83 ITR 52. He also placed reliance on a decision given by the Income-tax Appellate Tribunal, Madras Bench ‘B’ in the case of Dr. Miss R. Sundaram v. First WTO [1984] 18 TTJ 478 and also another decision of the Income-tax Appellate Tribunal Allahabad Bench in the case of Masood Halim v. WTO [1987] 28 TTJ 101 wherein it was held that the entire property must have been used for residence in order to gain the advantage of beneficial valuation provided for in Section 7(4) of the Wealth-lax Act, 1957.
10. As I have mentioned earlier it was on a consideration of these arguments and the relevant law on the subject and the exposition of the legal position made by the orders referred to, I came to the conclusion that the assessee is entitled to the benefit of the valuation provided for in Section 7(4) of the Wealth-tax Act, 1957. Sub-section (4) of Section 7 at the material time was in the following terms :-
7(4) Notwithstanding anything contained in Sub-section (1), the value of a house belonging to the assessee and exclusively used by him for residential purposes throughout the period of twelve months immediately preceding the valuation date may, at the option of the assessee, be taken to be the price which, in the opinion of the Wealth-lax Officer, it would fetch if sold in the open market on the valuation date next following the date on which he became the owner of the house, or on the valuation date relevant to the assessment year commencing on the 1st day of April, 1971 whichever valuation dale is later:
Provided that where more than one house belonging to the assessee is exclusively used by him for residential purposes, the provisions of this sub-section shall apply only in respect of one of such houses which the assessee may, at his option specify in this behalf in the return of net wealth.
Explanation : For the purposes of this sub-section –
(i) where the house has been constructed by the assessee, he shall be deemed to have become the owner thereof on the date on which the construction of such house was completed;
(ii) ‘house’ includes a part of a house, being an independent residential unit.
Analysed for the ingredients to be satisfied for the application of this section, we find (a) that the house must belong to the assessee; (b) it must be exclusively used by him for residential purposes; and (c) that the user must be throughout the period of twelve months immediately preceding the valuation date. If these three conditions are satisfied cumulatively as rightly held by the learned Accountant Member, the method of valuation provided here would be applicable. By the Explanation added to this subsection, it was provided that house includes a part of a house but the requirement is that it must be an independent residential unit. By substituting the provision made in the Explanation in the main sub-section and if we re-read Sub-section (4), it would read as under:
Notwithstanding anything contained in Sub-section (1) the value of a house or a part of a house being an independent residential unit, belonging to the assessee and exclusively used by him for residential purposes throughout the period of twelve months immediately preceding the valuation date….
Thus it means that even a part of a house if exclusively used for residential purposes throughout the period of twelve months and if it belongs to the assessee, the valuation to be made in respect of that part of the house must only be in the manner provided for in Sub-section (4). The emphasis therefore is not only on the word “exclusively” as held by the learned Accountant Member and emphasised by the learned Departmental Representative but also on the phrase “independent residential unit”. An independent residential unit though it forms a part of a house is qualified to the beneficial valuation provided for in Sub-section (4) of Section 7. One has therefore to see what is an independent residential unit. Does the word “independent” mean independent enjoyment of a house without depending upon any other portion of the house or docs it mean independent of disposition, or does it mean independent possession, or docs it mean all of them. In the context in which the word “independent” occurred in the Explanation and the context in which the independent residential unit was used in Sub-section (4), the word “independent” can only refer to, in my opinion, independent enjoyment of the house. If an independent enjoyment of a part of a house is possible as a residential unit, it should be possible not only to possess it independently of other units and it is also capable of being disposed of independent of other units or portions. Thus the word “independent” means peaceful enjoyment of the house as a residential unit, i.e., the enjoyment of that part should not be dependent upon any other unit of the house. In other words, the sustenance and support for the enjoyment of the house must come from this unit alone, and not from the support to be given by any other unit or portion, i.e., to say for an independent enjoyment of a unit as a residential unit, it must have its own entrance and exit, kitchen, its own drawing and dining rooms, its own bed room, its own bathroom, perhaps its own backyard and its own pooja and store room. Merely because there are different units under one common roof with independent egress and ingress, it cannot be said that for that reason those units are not independent units. The whole object of enacting Sub-section (4) is to confer a benefit on the houses used for residential purposes in the matter of valuation for wealth-tax purposes. The values of real estate depending upon the rate of inflation keep on fluctuating. Those fluctuations give rise to different valuations at different periods. Valuation not being an art may give rise to litigation and avoidable harassment without any appreciable accretion to the Revenues. It is to avoid this and to provide relief to the owners of residential houses, that an option has been provided by Section 7(4) to value the house either on the valuation dale relevant to the assessment year commencing on the 1st day of April, 1971 or the market value on the valuation date next following the date on which he became the owner of the house, whichever valuation date is later. Having regard to this object behind the legislation of this sub section the issue before me, has to be approached. The exclusive user prescribed in the sub-section for residential purposes does it exclude the safe custody of valuables and valuable documents in the house even if they relate to or pertain to business and thus constitute business assets. What I have in my mind in making this observation is that if an assessee is carrying on money lending business or deals in shares not needing a large show room or a large staff, except one person to look after the accounts and the entries and a strong room or an almirah to keep the share certificates, the money and the account books in safe custody, can it be said that the house was not exclusively used for residential purposes? A person carrying on business in money lending has to invest a large-capital therein as stock-in-trade. For safe custody, he may keep the cash in the house in a safe or in an almirah. Docs it mean that the house was used for business purposes also and not exclusively for residential purposes. Similarly if a dealer in shares keeps share certificates in the house for safe custody, does it mean that the house was used for business purposes and not exclusively for residential purposes. A person is entitled to keep his valuables with him in the same house where he is living for safe custody. The residential purpose therefore includes the purpose of keeping the valuables, be it personal or belonging to the business in the safe custody with him. If keeping of such valuables is included in the expression residential purposes, how can it then be said that the house was not exclusively used for residential purposes ?
11.1 am dilating on this point because the Wealth-tax Officer’s order shows that he was influenced by the fact that the assessee was keeping the valuables in the residential premises and therefore, residential premises could not be said to have been exclusively used for residential purposes. This is what he has said in the order, which was approved by the successive authorities, who had occasion to have a say in the matter:
This property was sold in the year November 1981, for a sum of Rs. 24,00,000. The assessee is residing in this house and carries on business. The business consists in dealing in shares and money-lending. The nature of the business is such that it does not require a big establishment. Actually share certificates etc., would be kept in an almirah in the house itself. Thus the house which is mainly used as residence and partly used for business purpose also. Therefore, the house is not exclusively used as residence for the purpose of Section 7(4) of the Wealth-tax Act.
Thus the value of the house for wealth-tax purposes cannot be pegged at 1971-72 value. The assessee’s statement that the business was done in the servants’ quarters is ludicuous as no person of the assessee’s status will ever keep any important papers in the servants’ quarters…
What do these observations show other than the feeling of the Wealth-tax Officer that because the share certificates were actually kept in an almirah in the house itself, the house should be held to have been used for business purposes also. I am unable to subscribe to this view that merely because share certificates and the cash, which was the stock-in-trade in the money lending business was kept in the safe custody, it can be said that the house was not used exclusively for residential purposes. I am of the view that if a person keeps for safe custody the cash and account books relating to money-lending business in the same house in which he is residing, it cannot be said that the house was not used exclusively for residential purposes. It is something like saying that if a person carries on pooja in the house, the house was used as a temple or partly as a temple. I am therefore not persuaded by the view adopted by the department in this regard. Except for keeping the money involved in the money lending and share certificate in the house there is no other finding recorded by any authority that the house was otherwise used for business purposes. Now the Explanation provided that the house includes a part of a house, the only prescription being that it must be an independent residential unit. If, in the house used for residential purposes, the cash belonging to the money lending business or share certificates belonging to the share dealing are kept in the common chest or iron safe, it can be said that excluding that part, the other part was a part of a house used exclusively for residential purposes being an independent residential unit. The independent residential unit need not necessarily be carved out as a separate unit built on the same land. But that was never the intention of the Legislature nor could it ever be because houses are built according to the economic capability of the person and his convenience and requirements. A person may borrow money and build a house in such a way that a portion of the house can be let out and from the rent so derived a part of the loan can be repaid. Can we say that the portion occupied by the owner was not exclusively used for residential purposes or was not an independent residential unit. The Legislature when it provided in the Explanation that a part of a house being an independent residential unit is also included in the term “house” was not contemplating the situation where different units are built on the same land because this sub-section was inserted long after 1-4-1971 by when several houses had already been built. The legislative intent must therefore be appreciated from the point of view of realities and pragmatically conferring a benefit having regard to the economic needs of the country and the realities. The approach should therefore be such as to grasp the real situation obtaining in the country rather than going by the highly technical or hyper-technical views. Therefore the controversy whether the business was carried on in servant quarter or not becomes irrelevant if we have regard to the fact that keeping for safe custody of cash and the share certificates in the house is included in the residential purposes and not de hors it.
12. Now when the assessee states that the money lending business was being carried on in servant quarters, what the assessee meant was that the employees were only two clerks, who are sitting in the servant quarters for the purposes of receiving the clients or for the purposes of receiving the letters and the correspondence and it does not mean that they have within their custody the cash and the share certificates. No enquiry was made to find out whether they had such custody. If the interpretation placed by the Departmental Representative is correct then no house will be an exclusively residential house because a businessman carrying on business elsewhere would always keep the cash for safe custody in the night in the house, so also the documents and the account books. If merely for that reason, it can be said that the house is not exclusively used for residential purposes, no house belonging to a businessman in the country would be able to avail of this benefit. Similarly if a person runs a shop in a front room of the house without causing any inconvenience to the enjoyment of the balance house for residential purposes, it cannot be said that the balance of the house used for residential purposes was not an independent residential unit. On the contrary the observations made by the Wealth-tax Officer in the order shows that the important documents were not kept in the servant quarters, and from mere situs of the papers he seeks to determine in the context in which these words appear in Sub-section (4) of Section 7 and the Explanation, that the house was used for residential purposes or business purposes. It is difficult to agree with the view expressed by the department that merely because the documents were locked in the house, which was purely for safe custody purposes, the house was used not exclusively for residential purposes and was used for business purposes: In this view of the matter, I am inclined to agree with the view expressed by the Allahabad Bench of the Income-tax Appellate Tribunal in the case of Bansilal Agarwal (supra),
13. Now adverting to the decision of the Delhi High Court in the case of Mrs. Avtar Mohan Singh (supra), the principle laid down there was totally inapplicable to the facts of this case and therefore the reliance upon the decision would not advance the case of the Revenue. There the assessee built a house and occupied it for her own residence. Her husband ‘B’ also resided with her as a member of her family. ‘B’ as a working director of a company was entitled to rent free accommodation but as the company could not provide him with such accommodation, it paid him a certain amount of rent per month as compensation, which was passed on by him to the assessee. The question was whether the assessee could claim exemption from the payment of wealth-tax to the extent of Rs. 1 lac in relation to that house under Section 5(1)(iv) of the Wealth-tax Act, 1957. The Delhi High Court held that since the husband of the assessee had systematically passed on the amount of rent to the assessee and by virtue of this payment, the husband of the assessee used the house in the right of a person, who was paying the assessee for his residence in the house and as the house was being used by the assessee not only for the residence of herself and her family but also to earn in the nature of payment made by her husband to her, it could not be said that it was used by the assessee for residential purposes only and therefore the assessee was not entitled to exemption under Section 5(1)(iv) of the Wealth-tax Act, 1957. Interpreting the word “for residential purposes” used in Section 5(1)(iv) of the Wealth-tax Act, the Delhi High Court pointed out that the significance of these words was two fold : (i) these words are to be construed with non-residential purposes such as commercial purposes, and (if) the words mean that the house is used by the assessee solely as residence and not with a view to making any income or profit from it. Any use of the house to earn an income would be outside “residential purposes of the assessee”. Applying this interpretation and the test laid down to the facts of the case before me, the assessee in this case did not use this house with a view to making any income or profits from it but was solely using it as a residence except that alongwith her property she kept the property belonging to her business in the safe custody. Keeping the belongings of the business for safe custody in the house does not amount to earning income therefrom. Therefore this decision does not help the Revenue’s case and the interpretation placed upon the words “for residential purposes” in a way goes to buttress the view I am taking and therefore advance the case of the assessee.
14. On a consideration of the above, I am of the opinion that the view taken by the learned Judicial Member is proper and justified. My opinion on the first question is that the definition of house contained in Clause (ii) of Explanation under proviso to Sub-section (4) of Section 1 of the Wealth-tax Act would apply to the case of the assessee where she is the owner of the entire house property and a part of that house was said to be used for business proposes could not really be said to be used for business purposes and it is covered by the expression ‘residential purposes’. My opinion to the second point is that the assessee had satisfied the conditions of Section 7(4) to be entitled to the beneficial valuation of the property. The assessee, the department and the Members, who heard the appeal proceeded on the basis that except for l/6th portion, the balance of 5/6th was utilised for residential purposes. The said l/6th was stated to be confined to servant quarters. Though the learned Accountant Member doubted it. Proceeding from this premises, my opinion on the third point is again in the affirmative that the valuation of 5/6th portion of the property was to be in accordance with Section 7(4) of the Wealth-tax Act, 1957 while l/6th portion is to be valued in accordance with the market value of the property under Section 7(1) of the Wealth-tax Act, 1957.
15. Now the matter will go back to the original Bench for deciding the appeals in accordance with the majority view.